OVERVIEW (LLQP Flashcards)
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What are the two main categories of life insurance policies that can be purchased in Canada?
Term insurance and permanent insurance
Term life insurance pays a death benefit if the life insured dies within the fixed term of the contract. Permanent life insurance provides coverage over the entire lifetime of the life insured. It does not expire (as long as the required premiums are paid) and it does not need to be renewed.
(Refer to Section 2.1, 3.1)
A client purchased a 10-year guaranteed renewable and convertible life insurance policy. The policy was delivered and a delivery receipt was signed 5 days ago. The client has now changed his mind about wanting the life insurance policy.
Can this client cancel the policy and get his money back?
Yes, by using the 10-day right of rescission.
Insurance policies provide a 10-day period after the policy is delivered during which the policyholder can change his or her mind, cancel the policy, and receive back any money that has been paid.
(Refer to Section 11.5.5.5)
A client purchased a life insurance policy 37 months ago. The insurance company has just received notice that the client committed suicide. Will the claim be paid?
Yes – the policy has been in force for more than two years.
Suicide clause – The death benefit will not be paid to the beneficiary of a policy if the life insured dies as a result of suicide within two years of the effective date of the policy.
(Refer to Section 2.6.1)
A client purchased a life insurance policy 15 months ago. The client has died and the insurance company has received notice that the client died as a result of a skydiving accident. Upon investigation, the insurance company discovers that the client has engaged in skydiving for the past 8 years. This information was not disclosed on the application for the life insurance policy.
Will the company pay the death benefit to the beneficiary?
No.
Incontestability – A life insurance policy can be contested if it has not yet been in force for two years. The fact that this client participated in skydiving was not disclosed on the life insurance application. This information would have impacted the underwriting decision of the insurance company.
(Refer to Section 2.6.1)
What is the purpose of a guaranteed insurability benefit (GIB) rider?
This rider provides the insured the ability to purchase additional insurance coverage without evidence of health.
This benefit provides exactly what its name says: guaranteed insurability. It guarantees the policy owner the right to increase their coverage even if their health declines.
(Refer to Section 5.1.4)
A client is considering purchasing a whole life policy. What are the three non-forfeiture benefits that are available on this type of policy?
- Automatic premium loan (APL)
- Reduced paid-up insurance (RPU)
- Extended term insurance (ETI)
Each option provides the policy owner with a way of maintaining insurance coverage. Cash surrender value (CSV) forfeits insurance coverage.
(Refer to Section 3.5)
When purchasing a whole life insurance policy, which rider will ensure that you can purchase additional insurance in the future without having to provide evidence of insurability?
A guaranteed insurability benefit (GIB) rider.
A guaranteed insurability benefit (GIB) rider guarantees the policy owner the right to increase their coverage even if their health declines.
(Refer to Section 5.1.4)
What type of coverage should be recommended when insuring a mortgage?
Term insurance.
The need to pay off the mortgage with insurance will require a term insurance policy only for the duration of the mortgage, usually 25 years or less.
(Refer to Section 11.4.1)
Can you exercise a policy loan from a Term-100 insurance policy?
No.
A Term-100 insurance policy does not have any cash value.
(Refer to Section 3.1.2.2)
A client requires $450,000 of life insurance. His agent prepares an illustration for $450,000 of non-participating whole life insurance as the client needs coverage for life. The client feels that this premium is beyond his financial means. What alternate permanent life insurance policy should the agent recommend?
Term-to-100.
Term-to-100 offers the distinct advantage of lower premiums relative to premiums for other permanent policies. This is because Term-to-100 has no cash value.
(Refer to Section 3.11.2)
What are the differences between Level Cost of Insurance (LCOI) universal life and yearly renewable term (YRT) universal life?
Yearly renewable term mortality costing is less expensive in the early years and allows for faster cash buildup in the policy. However, it becomes more expensive in the later years because the mortality cost increases.
Level Cost of Insurance is more expensive in the early years and cheaper in the later years because the mortality cost remains level.
Universal life insurance is an interest-rate–sensitive policy that is a unique combination of insurance and investment.
(Refer to Section 4.3.4)
What type of policy would you recommend for a client who would like to play an active role in the decision-making process of a permanent life insurance policy?
A universal life (UL) insurance policy.
UL insurance is considered to be the most flexible type of life insurance because the policyholder can modify the policy in various ways in the future. Unbundling of the three separate parts of a universal life policy (mortality costs, investment returns, and expenses) is an important feature of universal life policies. This allows the policy owner to see exactly how much growth is accumulating in the account, the rate of growth, and the cost of insurance and expenses. By being able to monitor investments, the policy owner is better aware of whether changes to the investments in the policy contract are warranted.
(Refer to Section 4.1)
Two partners own and run a successful manufacturing firm. Both of these individuals are vital to the success of this business. It would take a minimum of 2 years to train someone to replace either partner in the event of a death.
The partners acknowledge that a large sum of money would be necessary to provide for training and to keep the business afloat during the training period.
What would be the most economical way to provide permanent insurance coverage for this situation?
The partners should purchase a joint first-to-die, Term-to-100 policy.
Under joint-first-to-die coverage, two or more lives are insured jointly and the death benefit is payable upon the death of the first life insured. This kind of coverage is useful when individuals share a common liability that will be due upon the death of any one of them (e.g., a buy-sell agreement on the owners of a business).
(Refer to Section 2.2.2)
April is a single mother with two children. April knows that she needs to have life insurance in place for the protection of her children. She has decided to purchase a $200,000 whole life non-participating insurance policy.
What would be the most economical way for April to insure her two children?
Add a children’s term rider to her policy.
This will allow April to have insurance on her life as well as her children’s lives. If something should happen to the children, April would have money to deal with any final expenses. In addition, most policies will permit the conversion of a children’s term rider to a permanent policy at an attained age.
(Refer to Section 5.1.2.4)
